The Good Old Days

Listen, back in the “old days” stocks rose when the news was “good”, ok?

So I don’t what the hell is going on “these days” when stocks crash after everyone hears “good” news, but whatever is going on needs to stop right now, because if it doesn’t, well then, Jerome Powell is going to end up with his own derisive Twitter nickname, Sarah Huckabee Sanders is going to start insisting that “Dow Jones” was just an “intern”, and Trump is going to tell everyone that he barely knew Mr. Naz Dak who was just “a low level guy in the campaign.”

As far as today goes, it looks like no one will be arrested, because stocks managed to not collapse (which is saying something this week), although early gains did fade completely and the close wasn’t great.

Note the annotation in the chart for the lackluster 10Y auction. More on that below.

The VIX plummeted:

The Senate reached what they’re calling a “bipartisan” budget deal and although there will invariably be plenty of competing headlines about this, the bottom line appears to be more spending and a possible suspension of the debt ceiling through 2019. So obviously that drove up Treasury yields (i.e. brought the bond selloff back to the fore) and a lackluster 10Y auction didn’t help:

The notion that expansionary fiscal policy and the ballooning deficit are set to weigh on the Treasury market a time when foreign demand is in question and the Fed is running down the balance sheet has the potential to conspire with the headline risk surrounding the internals on auctions to reignite the bond selloff and thereby pull the rug out from equities that are trying desperately to rebound after the vol. shock.

This is a pretty egregious chart crime for a variety of reasons, but it gets the point across. There are still jitters about rising yields:

Here are the meaningless talking points from McConnell and Schumer:

And here’s a little relevant tidbit from BofAML out on Wednesday:

We discuss the fastest-growing part of the Economy—the budget deficit (Chart 1). Tax cuts, rising interest rates and adverse demographics point to a large and rising budget deficit. For the economy, this means “crowding out” of private investment, offsetting the incentive effects of lower tax rates. Deficit-financed tax cuts affect potential growth through several offsetting channels. On the one hand, lower tax rates increase the incentive to work, save and invest. On the other hand, higher budget deficits divert savings from the private sector to the government. Some of this shortfall can be filled by capital inflows from overseas. However, that creates a long-run debt-servicing burden. For markets, a growing budget deficit means faster Fed hikes, rising bond yields and a stronger dollar.

The dollar took off early after the ECB’s Ewald Nowotny plainly stated what Draghi hinted at in the January ECB presser – namely that Steve Mnuchin, at the best of the “very stable genius” he works for, is trying to engineer dollar weakness. Here’s what he said in an interview with Wiener Zeitung

What surprises us very much are two things. On the one hand, that the U.S. Treasury purposely pushes down the dollar and wants to keep it low, and on the other hand, that there has been no one in the vicinity of Donald Trump, where there are a number of sensible people, who has had a positive influence on the President and his politics.

Well Ewald, what can we say but you’re exactly fucking right, obviously. There’s a reality TV show host/WWE hall of fame inductee in the Oval Office and for whatever reason, no one around him seems willing to pick up their balls and invoke the 25th on 45.

Anyway, the implication there is obviously that the ECB will need to counter Mnuchin by leaning dovish/talking down the euro, lest the single currency’s ongoing strength should derail the bank’s efforts to hit their inflation target or otherwise undermine the robust European recovery. Here’s the dollar on the day:

Here’s an annotated chart that should be handy for anyone who needs to step back and recall what all has transpired to drive the dollar lower in 2018 coming off the worst year for the greenback since 2003:

And here’s EURUSD on the day:

Notably, the dollar was also boosted by the Senate deal and the euro’s losses really started to pile up after that hit the wires. Still, don’t forget the German coalition news which all else equal should be euro bullish.

European shares managed to pick themselves up off the floor today and I’ll just lump these together in one chart that shows you how the week has played out. Long story short, they pared their weekly decline on Wednesday:

The VStoxx plunged as volatility subsided across the pond:

As noted first thing Wednesday morning, Asian trading wasn’t exactly encouraging. It seemed like folks felt compelled to buy at the open based on how Wall Street closed on Tuesday, but as the session wore on, the reality of the situation (whether that’s lingering fears of DM stimulus unwind, the looming threat of trade wars, or just the fact that we’ve run as far as we have in global equities) set in, and the sugar high wore off.

Opening gains were faded aggressively in Japan:

And in Hong Kong:

And in South Korea:

Finally, for your moment of zen, here is “Mad Dog” trying to explain why in the fuck Donald Trump feels it’s necessary to hold an actual military parade in the United States which, last time we checked, was not a goddamn banana republic…

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